Your credit score can make securing a financial loan for heavy equipment simple or it can lead to major complications that are difficult to overcome. If your credit score isn't in tip-top shape, you're likely looking for some advice on how to improve it. Keep reading for specific guidance that you can use to help ensure your credit score is as high - and as accurate - as possible, as well as tips for maintaining and improving it in the long term.

What is a credit score?

Your credit score is a number that helps determine your personal creditworthiness, which has a major impact on whether lenders will extend offers to you as well as the terms of those agreements. Credit scores are assigned by multiple organizations using a variety of metrics, and those credit bureaus frequently use different measurements to determine your credit score. However, scores are often expressed simply as a three-digit number that ranges between 300 and 850, as Investopedia explained.

A number below 640 is regularly seen as indicating an increased risk for lenders. In other words, lenders are more likely to offer less-attractive terms to help them justify taking on that higher risk of a borrower in such a position. Alternatively, numbers in the middle and high 700s indicate that a borrower is a low credit risk. That can lead to benefits such as lower interest rates. Credit scores are fluid, changing based on actions taken by individuals.

What are the five major categories that contribute to the credit score?

• Capacity or percentage of available credit used.
• History of on-time payments.
• Length of existing credit history.
• The different types of credit used.
• Past credit applications.

With this in mind, how can you get a handle on your credit score and work to improve it?

Request and Review Your Reports

The best way to review your current credit position, and start the process of making corrections, if necessary, is to exercise your right to make an annual free request for reports from the three major credit reporting agencies. Equifax, Experian and TransUnion reports can be accessed each year by simply making a request via the Annual Credit Report website. Be sure to ask for all three reports. Each report could contain different data that impacts your credit score.

With each of the reports in hand - or on a screen - begin a careful review of all of the details contained within. Don't jump directly to the information about bill payment, credit utilization and similar considerations. Instead, start by ensuring your personal data, from your address to your Social Security number and list of active bank and credit accounts, is accurate. Incorrect information could lead to issues with your credit report.

From there, you can review the specific credit information and check for issues, such as an unpaid debt that you believe was paid in full, or a report of late bill payments when you know you sent in the funds on time. If you start finding any problems or errors, make a list that includes all of the specific information. Then, contact both the credit bureau that issued the report and the organization that provided the information with written letters. Under the Fair Credit Reporting Act, these parties are responsible for correcting inaccurate information found in your report.

You need to follow specific steps to realize the best chance of having incorrect information removed from your report. The Federal Trade Commission offered detailed instructions for initiating a dispute with both the credit bureau and the company, including a sample letter that can be customized and sent to both parties. 

The Value of the Passage of Time

The only way to make sure accurate negative information comes off of your credit report is to wait for enough time to pass. In general, negative details can sit on your report for seven years, with bankruptcy information remaining for 10 years. There are a few exceptions, but outside of civil and criminal court cases, job applications for high-salary positions and requests for extremely high-value lines of credit and life insurance, you can expect the negative information to drop off eventually.

How to Boost Your Credit Score

You can take certain actions to improve your credit score and reap the benefits that the higher number provides. One of the easiest places to start is bill payment, as CNN Money pointed out. Always pay your bills on time, and never let a bill sit for 30 days or more. Letting an account go delinquent past that 30-day period is the most common trigger for a negative report on your credit score. There are a variety of strategies to consider for ensuring prompt settling of your bills, from setting up automatic payments through your checking account or credit card to scheduling time each month to sit down and check the status of each bill.

Another area to pay attention to is the frequency with which you request new lines of credit. Take a conservative approach to opening new credit cards and similar actions. Experian said the value of opening a card simply to increase your overall amount of available credit - and, therefore, your credit score - is minimal, as it often won't make much of an impact. Similarly, you should avoid closing existing, unused cards. If you have existing debt that can't be paid off immediately, closing those cards and reducing your total available credit can have a negative impact on your score. Additionally, keeping cards open for a long period of time can have a positive impact on your score.

Another dimension to consider is debt management. CNN Money said keeping credit utilization, both individually and across all accounts, below 30 percent is a vital component of a high score. Don't lean too heavily on any one card. You should also have a strong plan for cutting down your debt over time, as zero utilization reflects the best on your score.

Improving your credit score can take time, although you may notice improvements from month to month if you follow the steps outlined to address easily corrected mistakes. A high credit score gives you a wide range of advantages, from making it easier to rent a home to potentially making the terms of a heavy equipment loan or lease more attractive. To learn more about getting the equipment your business needs to succeed, get in touch with Cat Financial today.